Equities Rally on Further ECB Promises
Market Recap:
Our Market Leaders Board shows the Russell 2000 rebounding and leading the way higher (as we expected on Thursday night) while the Dow lagged a bit.
SPX big winners were Metropcs Communications Inc (PCS) 31.99%, Akamai Technologies Inc (AKAM) 20.3%, and Western Digital Corp (WDC) 17.88%. SPX big losers were Interpublic Gr Of Cos (IPG) -10.7%, Vulcan Materials Co (VMC) -10.29%, and Boston Scientific Corp (BSX) -6.92%.
SPX five day big winners are Metropcs Communications Inc (PCS) 31.15%, Western Digital Corp (WDC) 20.06%, and Sandisk Corp (SNDK) 18.33%. SPX five day big losers are Netflix Inc (NFLX) -31.41%, Devry Inc (DV) -29.27%, and International Game Technology (IGT) -28.73%.
Market Recap – Weekly Review:
The SPX gained 22.21 points during the week (1.63%). The range for the week was 59.95, 4.4%. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 2000) is 70. Pullbacks often occur as this RSI reaches 80 and bounces near 20.
Total tick for the week was 433,000. On the NYSE, the advance/decline line increased during the week by 597 and the 10 day average of Net Advancing increased by 52. There were 720 New Highs and 360 New Lows.
Checking the sectors of the SPX for the week:
The Basic Materials sector advancing issues (14) totaled 3,001,857 shares traded (214,418 average per stock) and declining issues (16) totaled 3,268,888 shares traded (204,306 average per stock.) 11 components are on a weekly uptrend (1 new uptrends this week) and 19 components are on a weekly downtrend (no new downtrends this week.) There were 1 New Highs and 3 New Lows.
The Energy sector advancing issues (34) totaled 10,186,987 shares traded (299,617 average per stock) and declining issues (10) totaled 2,333,498 shares traded (233,350 average per stock.) 30 components are on a weekly uptrend (5 new uptrends this week) and 14 components are on a weekly downtrend (1 new downtrends this week.) There were no New Highs and 2 New Lows.
The Financials sector advancing issues (67) totaled 27,161,276 shares traded (405,392 average per stock) and declining issues (13) totaled 1,715,365 shares traded (131,951 average per stock.) 42 components are on a weekly uptrend (9 new uptrends this week) and 39 components are on a weekly downtrend (2 new downtrends this week.) There were 10 New Highs and 3 New Lows.
The Industrials sector advancing issues (48) totaled 9,664,698 shares traded (201,348 average per stock) and declining issues (12) totaled 1,637,647 shares traded (136,471 average per stock.) 34 components are on a weekly uptrend (12 new uptrends this week) and 26 components are on a weekly downtrend (2 new downtrends this week.) There were 5 New Highs and 2 New Lows.
The four 'risk sectors' totaled 163 advancing issues and 51 declining issues this week with 27 new uptrends and 5 new downtrends.
The Technology sector advancing issues (60) totaled 29,121,900 shares traded (485,365 average per stock) and declining issues (18) totaled 11,835,439 shares traded (657,524 average per stock.) 31 components are on a weekly uptrend (12 new uptrends this week) and 47 components are on a weekly downtrend (2 new downtrends this week.) There were 5 New Highs and 10 New Lows.
The Consumer Staples sector advancing issues (29) totaled 5,541,927 shares traded (191,101 average per stock) and declining issues (11) totaled 2,278,232 shares traded (207,112 average per stock.) 24 components are on a weekly uptrend (3 new uptrends this week) and 16 components are on a weekly downtrend (2 new downtrends this week.) There were 8 New Highs and 3 New Lows.
The Utilities sector advancing issues (26) totaled 2,979,905 shares traded (114,612 average per stock) and declining issues (5) totaled 803,336 shares traded (160,667 average per stock.) 30 components are on a weekly uptrend (no new uptrends this week) and 1 components are on a weekly downtrend (1 new downtrends this week.) There were 15 New Highs and no New Lows.
The Health Care sector advancing issues (34) totaled 8,716,561 shares traded (256,369 average per stock) and declining issues (18) totaled 3,964,231 shares traded (220,235 average per stock.) 27 components are on a weekly uptrend (3 new uptrends this week) and 25 components are on a weekly downtrend (3 new downtrends this week.) There were 7 New Highs and 2 New Lows.
The Consumer Discretionary sector advancing issues (53) totaled 12,195,002 shares traded (230,094 average per stock) and declining issues (28) totaled 9,080,089 shares traded (324,289 average per stock.) 40 components are on a weekly uptrend (6 new uptrends this week) and 41 components are on a weekly downtrend (3 new downtrends this week.) There were 8 New Highs and 9 New Lows.
Volume & Breadth Indicators
For the SPX Index there were 481 components advancing and 17 components declining. On the NYSE 3,135 issues were traded with 2,552 advancing issues and 505 retreating issues, a ratio of 5.05 to one advancing. There were 248 new highs and 29 new lows. The five day moving average of New Highs is 144 while the five day moving average of New Lows is 72 and the ten day moving average of Net Advancing is 125. It is interesting that the ten day Net Advancing has not broken above +200.
Advancing volume was higher at a ratio of 18.29 to one. The closing TRIN was 0.3 and the final tick was 102. The five day average of TRIN is .83 and the ten day average of TRIN is 1.02. The NYSE Composite Index gained 2.03% today while the SPX gained 1.87%.
For the NYSE, relative to the previous 30 session average, volume was 12.92% above the average. Of the last 15 sessions 4 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 14 sessions ended on a positive tick, 4 of last 10. For the SPX, the day's volume was 118.% of the average daily volume for the last year. Volume was 114.5% of the last 10 day average and 97.2% of the previous day’s volume.
Looking at the NYSE 15-second tick data, the total tick for the day was 283,000 and the average tick for the day was 183. There were 90 ticks greater than 600 and 0 ticks more extreme than -600. There were 16 ticks greater than 1000 and no ticks more extreme than -1000. Institutional accumulation strongly suggested by the action.
Moving Average and Support/Resistance Indicators:
86.8% of the SPX are above their five day moving average, 72.6% are above their 10 day average, 65.4% are above their 20 day moving average, 69.8% are above their 50 day moving average, and 56.6% are above their 200 day moving average.
Our moving averages are clustered and converged mostly around 1350 and 1360 SPX. This a suggestion of choppiness and range bound trading. There were three significant moving average crossovers Friday as the Dow and Sox both had their 5 DMA move above the 20 DMA and Germany's 20 DMA moved above the 50 DMA. Our moving average Power Rating is 39 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Industrials -- Outperformed the SPX by +27%.
- Technology -- Outperformed the SPX by +25%.
- Health Care -- Outperformed the SPX by +48%.
- Consumer Discretionary -- Outperformed the SPX by +6%.
Sectors weaker than the SPX for Friday:
- Basic Materials -- Underperformed the SPX by -9%.
- Energy -- Underperformed the SPX by -15%.
- Financials -- Underperformed the SPX by -2%.
- Consumer Staples -- Underperformed the SPX by -77%.
- Utilities -- Underperformed the SPX by -74%.
Checking the sectors of the SPX after Friday's action: (The sector Buy and Sell signals come from a mechanical trend trading system; there will be some whipsaw but the signal will never be on the wrong side for long.)
The Basic Materials sector advancing issues (28) totaled 1,179,756 shares traded (42,134 average per stock) and declining issues (2) totaled 297,002 shares traded (148,501 average per stock.) 20 components are on an uptrend (12 new uptrends Friday) and 10 components are on a downtrend (no new downtrends Friday.) There were 1 New Highs and 1 New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed -.79% below the 20-Day average.
The Energy sector advancing issues (44) totaled 2,754,259 shares traded (62,597 average per stock) and declining issues (no) totaled no shares traded (no average per stock.) 40 components are on an uptrend (7 new uptrends Friday) and 4 components are on a downtrend (no new downtrends Friday.) There were no New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed 1.23% above the 20-Day average.
The Financials sector advancing issues (78) totaled 5,974,062 shares traded (76,591 average per stock) and declining issues (3) totaled 242,778 shares traded (80,926 average per stock.) 65 components are on an uptrend (29 new uptrends Friday) and 16 components are on a downtrend (no new downtrends Friday.) There were 9 New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -1.07% below the 20-Day average.
The Industrials sector advancing issues (58) totaled 2,393,303 shares traded (41,264 average per stock) and declining issues (1) totaled 52,755 shares traded (52,755 average per stock.) 47 components are on an uptrend (16 new uptrends Friday) and 14 components are on a downtrend (no new downtrends Friday.) There were 5 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed -.09% below the 20-Day average.
The four 'risk sectors' totaled 208 advancing issues and 6 declining issues Friday with 64 new uptrends and 0 new downtrends. 79.6% of Risk Sector components are uptrending.
The Technology sector advancing issues (75) totaled 8,042,953 shares traded (107,239 average per stock) and declining issues (4) totaled 320,155 shares traded (80,039 average per stock.) 60 components are on an uptrend (19 new uptrends Friday) and 19 components are on a downtrend (1 new downtrends Friday.) There were 4 New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -.53% below the 20-Day average.
The Consumer Staples sector advancing issues (40) totaled 1,830,413 shares traded (45,760 average per stock) and declining issues (1) totaled 29,948 shares traded (29,948 average per stock.) 30 components are on an uptrend (11 new uptrends Friday) and 11 components are on a downtrend (no new downtrends Friday.) There were 8 New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -.24% below the 20-Day average.
The Utilities sector advancing issues (30) totaled 745,426 shares traded (24,848 average per stock) and declining issues (1) totaled 28,960 shares traded (28,960 average per stock.) 30 components are on an uptrend (3 new uptrends Friday) and 1 components are on a downtrend (no new downtrends Friday.) There were 15 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .51% above the 20-Day average.
The Health Care sector advancing issues (50) totaled 2,734,097 shares traded (54,682 average per stock) and declining issues (2) totaled 81,662 shares traded (40,831 average per stock.) 32 components are on an uptrend (14 new uptrends Friday) and 20 components are on a downtrend (no new downtrends Friday.) There were 5 New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -.51% below the 20-Day average.
The Consumer Discretionary sector advancing issues (78) totaled 4,410,700 shares traded (56,547 average per stock) and declining issues (3) totaled 429,541 shares traded (143,180 average per stock.) 55 components are on an uptrend (20 new uptrends Friday) and 26 components are on a downtrend (2 new downtrends Friday.) There were 7 New Highs and 1 New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -.72% below the 20-Day average.
Based on the SPX sector data, we are on a Buy for the SPX and the Russell 2000.
What We Learned from Friday's Action:
Friday was session 2 to close above the 5 DMA, session 2 to close above the 10 DMA, session 2 to close above the 20 DMA, and session 11 to close above the 50 DMA. This was also session 3 for the 5 DMA to close below the 20 DMA. One early sign of a sustainable rally or pullback is often a close above or below the 10 DMA. The SPX closed 25.77 points above the 10 DMA.
The SPX 5 DMA is 1354.54, 10 DMA is 1360.2, 20 DMA is 1357.64, 50 DMA is 1335.46, 100 DMA is 1359.75, and 200 DMA is 1318.13.
On Friday the SPX traded above the opening range but did not trade below the opening range. 90.4% of the SPX closed up from the previous close; 85.6% closed higher than the open. During Friday's session the SPX gained 25.92 points from open to close. The SPX intraday trading range was 23.74 points. The 5-Day average intraday trading range is 16.8 points, the 10-Day average is 14.47 points, and the 20-Day average is 13.41 points. The trading range is expanding. The 5-Day SPX gain is 1.71%, the 10-Day gain is 2.15%, and the 15-Day gain is 2.31%.
Note: The Opening Range Breakout is one of the simplest day trading set-ups to understand. The first hour of the trading day is the most volatile. Bears and bulls are battling it out in the stock market, trying to show you who’s going to be in charge for the day. If we break out of that trading range, it's telling us that new buying or selling is impacting traders' assessments of value. Looking back at today’s breakouts also helps us grasp sentiment going forward because when a clear trend is established it often carries through for several sessions.
Looking Ahead:
The Market Environment for Monday is -4. Greater than three is bullish and less than negative three is bearish. The short-term trend appears to be higher. Mel's 5-Day Oscillator is 42 and Mel's 10-Day Oscillator is 44 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, we are bearish for Monday's session.
We are a simple trader. During times that the market allows it, we will use the simplest means possible to make money. This is what our simple eyes see: The SPX is range locked between 1310 on the low end and 1390 on the upper end since the start of the year. Yes, there have been brief excursions outside the range but none that lasted long. If you have shed all bias and simply bought at 1310 and shorted at 1375 how has your year of trading been? Relatively stress-free with high profits. Nine times (by my count) we have traveled that zone. The pattern is tradable until broken, we believe, and only breaks above 1422 and below 1265 really endanger the pattern. Layer in and layer out and take profit when you have it.
While some traders were screaming short-side this week, we made nine TNA trades, +2.04%, +2.03%, +2.91% (double sized layer),+2.09%, +2.54%, +4.24%,+5.44%, +1.02%, +2.00%, all posted live, ahead of entry on Twitter with exits also posted ahead of time allowing time for simple follows if someone chose.
As those who are on our direct mailing list were alerted last evening (as well as the Twitter followers), we are now switching gears and working the short-side via TZA and some UVXY. Nothing is perfect and nothing works every time. But the odds here seem good for a market pullback.
First, let’s look at the McClellan Oscillator within the Bollinger Band. This is never a 100% indicator but when used with other data, it can be an effective tool; we recommend it and if you use Think or Swim, we will freely email this simplistic script to you just for the asking. Several free stock chart software packages offer a similar function but we are partial to ours. This chart shows that the McClellan Volume Oscillator has already touched the top Bollinger Band; enthusiasm the last couple of days has been running wild.
Another thing we like to keep an eye on is our proprietary Volume Index. This is a slower moving index; not responsive to fast moves but will usually give heads-up on longer-term trend changes. While it is pretty mixed right here, that alone is a strong suggestion of sideways range-bound trading. This range-bound trading is frustrating investors but it is a thrill to a short-term trader.
One other thing to notice is within the sector data outlined above. Every sector closed above their Pivots Friday (this is a bit unusual) yet only the Energy sector also closed with their 5-day average above the 20-day average. This is a very unusual thing to happen, last occurring at the close of November 30th, 2011 with the SPX at 1247 and the Russell at 737. Several days of sideways meandering followed but on December 8th the SPX closed at 1234 and the Russell at 722. On December 14th, SPX closed at 1212 and the Russell at 708. And this happened near the low end of that time's trading range; we feel we may have even a bit more room here near the top of our current range.
Hence, we are short, even into the face of the Fed this week. This is certain to be an interesting week. Can the ECB follow through on the promises? What can the Fed do to encourage the markets after already committing last month to further Operation Twist? Most importantly, how will traders react? Might not there be some let down of enthusiasm?
Big picture? We see higher ahead. But we are not trading the big picture. Our money is looking for one-to-three days of decline, and then we look further ahead.
Week of July 30 - August 03 Overview
Date/Time Release/Consensus
07/31/12 8:30 Personal Income/0.004
07/31/12 8:30 Personal Spending/0.001
07/31/12 8:30 PCE Prices - Core/0.001
07/31/12 8:30 Employment Cost Index/0.005
07/31/12 9:00 Case-Shiller 20-city Index/-0.018
07/31/12 9:45 Chicago PMI/52.5
07/31/12 10:00 Consumer Confidence/61
08/01/12 7:00 MBA Mortgage Index/NA
08/01/12 8:15 ADP Employment Change/125K
08/01/12 10:00 ISM Index/49.9
08/01/12 10:00 Construction Spending/0.005
08/01/12 10:30 Crude Inventories/NA
08/01/12 14:00 Auto Sales/NA
08/01/12 14:00 Truck Sales/NA
08/01/12 14:15 FOMC Rate Decision/0.0025
08/02/12 7:30 Challenger Job Cuts/NA
08/02/12 8:30 Initial Claims/365K
08/02/12 8:30 Continuing Claims/3298K
08/02/12 10:00 Factory Orders/0.006
08/03/12 8:30 Nonfarm Payrolls/100K
08/03/12 8:30 Nonfarm Private Payrolls/105K
08/03/12 8:30 Unemployment Rate/0.082
08/03/12 8:30 Hourly Earnings/0.002
08/03/12 8:30 Average Workweek/34.5
08/03/12 10:00 ISM Services/52.2
Monday, July 30
Economics
10:30 Dallas Fed – consensus 2, prior 5.8
11:00 Fed to purchase $1.5b-$2b notes in 25 to 30-year range
11:30 Treasury selling $30b 3-month bills, $27b 6-month bills
08:30 GBP Net Consumer Credit
09:00 EUR Eurozone Consumer Confidence
23:30 JPY Jobless Rate
11:00 Italy to sell EU750m 3-year notes, EU2.5b in 10-year notes, EU2.25b in 5-year notes
14:00 France to sell bills
Earnings
Before:
No major reports
After:
Eastman Chemical (EMN) EPS $1.29
Flowserve (FLS) EPS $1.91
GDP rose 1.5%, better than the expected 1.2%. Consumer sentiment was 72.3, better than last month's 72.0. On Monday we will get the Dallas Fed survey.
Thank you for reading. Think on it, trade on it, and be well.
-Mel